Market news

Headlines

* US Treasury yields rise as investors consider interest rate outlook

* Dollar stops the bleeding as eyes flock to Powell and FOMC officials

* Gold eases as spotlight turns to Fedspeak for rates cues

* S&P 500 is little changed after best week of 2023

FX: USD traded marginally lower for most of the day before closing in the green. The big sell-off on Friday after NFP has paused but is holding below the October low at 105.40 which coincides with a long-term Fib level of the September 2022 drop. Falling US yields, a Fed whose work is now done, and rate cuts being priced back into the middle of next year have hit the greenback. Next level for the bears is the May top at 104.69. Yields did rebounds slightly on Monday so any further pushback from Fed officials this week will be important, with no real top tier data to direct price action.

EUR eventually closed very modestly lower, after the 1% move north on Friday. Data was mixed with German industrial production beating estimates. Next resistance is the 38.2% retrace of the summer sell-off at 1.0764. The 100-day and 200-day SMAs converge just above 1.08. Dips to the upper 1.06s should be well supported.

GBP finished lower after moving above 1.24 during the European session. Friday’s GDP should show how challenging growth has been with a small contraction predicted. Cable gains got close to the 200-day SMA at 1.2435. Above here is the Fib level (38.2%) of the summer decline at 1.2459. Support may come at the mid-October highs at 1.2337.

USD/JPY moved higher after three days of strong selling and settled above 150. The major hit resistance just below the October 2022 top at 151.94 last week. Support is the late October low at 148.80. BoJ Governor Ueda again cautioned how the bank will patiently maintain monetary easing to support activity. Japanese wage data is out today and forecast to rise 1% y/y in September.

CAD consolidated recent gains versus the dollar after dipping to the 50-day SMA at 1.3629. Overbought conditions and negative RSI divergence had signalled a reversal in the major was likely. The Canadian jobs data missed estimates, but wages remain hot. The major closed at the big figure (1.37) which has been a notable long-term technical level.

Stocks: US equities closed up for a sixth day in a row. The benchmark S&P 500 added 0.18% to settle at 4365. The 50-day SMA is at 4346. The tech-heavy Nasdaq finished 0.37% higher at 15,154. The falling trendline from July high is bang on yesterday’s close. The Dow settled 0.10% up at 34,095. Stocks were choppy but registered marginal gains. It is now the largest six-day point and percentage gain since November last year for the broad-based S&P 500. The data is thin this weeks but Disney and Biogen report earnings this week. Over 80% of S&P 500 companies have now published their results, with 81.6% beating estimates.

Asian futures are in the green. APAC stocks traded higher on Monday after the tailwinds from the US session and weak NFP tailwinds. Sentiment in the region was boosted by South Korea who announced a short-selling ban. That propelled the Kospi 4% higher.

Gold is currently being weighed down by profit taking from speculators who recently bought a near record amount in the futures market. Prices are have turned down below $2000.

Day Ahead – RBA rate decision

The RBA is the main risk event of the week and is a close call. Markets just about edge towards a 25bps rate hike, though consensus sees that much more likely. A rate rise would take the cash rate to 4.35% and would be the first move after four back-to-back on hold decisions from July to October. Key are inflation figures for the third quarter that came in hotter than expected at 5.4%. The monthly CPI year-on-year figure jumped to 5.6% in September.

That said, employment growth has been slow and full-time jobs declined in September, with the unemployment rate unexpectedly falling to 3.6%. Business surveys have also signalled that economic growth will probably slow into year-end amid a drop in new orders.

Expectations have been for RBA Governor Michele Bullock to send a strong message in her first few meetings. This is probably the best chance for her to do so given the rebound in inflation. Indeed, she has highlighted recently that the RBA is wary of inflation and the bank may have to hike.

Chart of the Day – AUD/USD hits resistance zone

The aussie is a cyclical, high beta currency which is driven by global sentiment issues. This is due primarily to the commodity-related economy. Of course, the risk mood has picked up lately as markets have repriced in rate cuts for the middle of next year. This comes soft US data, a more dovish FOMC meeting and easing geopolitical escalation fears in the Middle East. However, a coin toss RBA meeting will cause volatility in the aussie.

A base has formed around 0.63 after repeated attempts to breakdown through this zone failed over the last few weeks. The last three days of last week which included the Fed meeting, ISM and NFP data, saw a strong rebound taking prices through the 50-day SMA at 0.6394. Prices have now bumped up into the 100-day SMA at 0.6510. This is also exactly where a major retrace level (38.2%) of the July decline resides and prior May lows, plus August and September lows. Buyers will aim for the halfway point of the summer drop at 0.6584 which is just above the March and May lows.